How Does Franchising Work?

Starting a franchise doesn’t have the same process as starting a small business. Franchising is a process by which a business owner, known as franchisor, authorizes a third party, called a franchisee, to run a business using the former’s company name and procedures in exchange for a fee. Whether you’re the franchisee or the franchisor, the process of franchising involves many steps that you will follow to get started and work things out.

Read on this article as we’ll provide a checklist on how franchising works.

1. The franchisor does market research.

Before a business becomes a franchise, it’s important for the franchisor to do market research, which includes the odds of business success in a particular location. Also, factors such as competition evaluation, calculation of expenses, analysis about sales, and location search are taken into account. Once all of these factors are assessed, it’s time for the franchisor to open the business for potential franchisees.

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2. The franchisee pays the fees.

If you’re a franchisee, the franchising begins at the moment you meet with the franchisor to discuss business opportunities as well as the startup fees, franchising fees, and other related costs. At this stage, you may also need to go to their bank to tackle the finances. Moreover, you can use this time to get to know the franchisor by looking at their past successes, costs, and history of litigation if there’s any. It’s important to get yourself acquainted with the person you’ll be working with before deciding to go for the business and pay the associated fees.

Remember, fees involving franchises vary depending on the nature of the business, location, target market, and many more. So, be sure to organize all your finances first before committing yourself and your money for a franchise.

3. The franchisor supplies the franchisee with the necessary materials.

Buying a franchise comes with incredible benefits, and one of them is the materials, training, and support provided by the franchisor to the franchisee. Prior to the opening of the franchise, the franchisor provides the franchisee with the systems including the building plans, training for employees, and the standardization of the aesthetic designs of the business. The franchisee should follow the established processes to ensure uniformity of the franchise.

4. The franchisee starts the operation of the franchise.

Once everything is set with the franchisor, the franchisee starts to conduct the operations of the business at the new location. They will do the recruitment, training, and maintenance of the franchise standards to ensure that the day-to-day duties and transactions are accomplished. The people hired by the franchisee will be the operators of the new franchise.

5. The franchisee continues to pay franchise fees and other royalties.

In exchange for buying a business brand that has been successful for many years, the franchisee continues to pay the franchisor with franchise fees and royalties. The payment will cover the marketing materials, training tools, and other trade secrets of the franchise.

However, the franchisee should keep these trade secrets highly confidential to protect the business name and the former’s total investment in acquiring a franchise.

6. The franchisor keeps supplying research and marketing standards.

After the opening of the franchise, the overall operations will be handled by the franchisee and their employees. However, the franchisor will not also stop checking on the franchise and see to it that it consistently meets the brand’s standards.

They will do this by providing marketing and research to improve the performance of the business. This way, both parties will have the opportunity to collaborate on all the things that need to be adjusted to achieve success.

7. A successful franchisee may take more opportunities to open new locations.

Managing a franchise is a massive undertaking for both the franchisor and franchisee. When the franchise runs smoothly, the franchisee can get the permission of the franchisor to expand at new locations. This means more opportunities and investments on both parties.

When this happens, the franchisor and franchisee should have a good business relationship and teamwork so they can continue to establish and provide a well-developed business model in new locations.

Conclusion

Like any other business decision, careful planning and research should be taken when starting up a franchise. How this kind of business model works also depends upon a variety of factors that the franchisor and franchisee should take into account. If you’re thinking of buying a franchise, keep this information in mind to avoid making a bad decision later on. Remember, the success of operating a franchise has so much to do with how you manage the right resources throughout the process.